By Rudman Winchell Attorney Jonathan Hunter
Maine’s recently adopted state budget includes important changes to Maine’s estate tax. The new budget greatly increases Maine’s estate tax exclusion, bringing it in line with the federal estate tax exclusion.
Only individuals whose estates exceed the exclusion amount are subject to the estate tax. Until 2016, when the changes come into effect, the exclusion amount for the Maine tax is $2 million. Under the new budget, the exclusion amount for individuals who die after January 1, 2016, will rise to the federal exclusion amount, which is adjusted annually for inflation and currently sits at $5.43 million for 2015.
The change will be a boon to individuals with estates between $2 million and $5.43 million, who would be subject to Maine’s estate tax—but not the federal estate tax—under the existing tax structure. There are, however, two important caveats.
First, the new budget leaves in place a critical distinction between the federal and state taxes. Federal law permits a surviving spouse to add any unused portion of a deceased spouse’s exclusion to the surviving spouse’s own exclusion. In other words, if a deceased spouse only used $1 million of their federal estate tax exclusion, the surviving spouse could use his or her own $5.43 million exclusion, plus the deceased spouse’s unused $4.43 million, for a total of $9.86 million. Maine law does not allow such “portability” of the exclusion between spouses; each spouse is limited to their own $5.43 million exclusion.
Second, tax laws are subject to change based on policy shifts, economic factors, or simple political expediency. Periodic review of one’s estate plan is advisable in the face of this ever-shifting tax landscape.
For those estates that exceed the new exclusion amount, the excess is taxed at a rate based on how much the estate exceeds the exclusion amount, in progressive increments of $3 million:
- Up to $3 million over the exclusion amount – 8%;
- Between $3 million and $6 million over the exclusion amount – 10%;
- More than $6 million over the exclusion amount – 12%.
For example, using the 2015 exclusion amount of $5.43 million, an estate of $6 million would be taxed at a rate of 8% on $570,000 (the amount exceeding $5.43 million), for a total tax liability of $45,600. A $10 million estate would be taxed at 8% on the first $3 million exceeding $5.43 million, and at 10% for the remaining $1.57 million, for a total tax liability of $397,000. Note that these rates relate only to the Maine estate tax and are separate from and in addition to the federal tax.
If you have questions about the impact of these changes to the Maine estate tax on your estate plan, it is strongly encouraged that you speak with an attorney.